Sunday, April 30, 2017

Although I'm sure someone has pointed this out I've never seen it, or at least not in a form that was easy to grasp.
I highlighted it in red so I wouldn't miss it.
And then forgot to post.

From the Computer Science mavens at The Association for Computing Machinery's acmqueue Research for Practice series, January 24, 2017:

Cryptocurrencies, Blockchains, and Smart Contracts; Hardware for Deep LearningExpert-curated Guides to the Best of CS Research

Our fourth installment of Research for Practice covers two of the
hottest topics in computer science research and practice:
cryptocurrencies and deep learning.

First, Arvind Narayanan and
Andrew Miller, co-authors of the increasingly popular open-access
Princeton Bitcoin textbook, provide an overview of ongoing research in
cryptocurrencies. This is a topic with a long history in the academic
literature that has recently come to prominence with the rise of
Bitcoin, blockchains, and similar implementations of advanced,
decentralized protocols. These developments—and colorful exploits such
as the DAO vulnerability in June 2016—have captured the public
imagination and the eye of the popular press. In the meantime, academics
have been busy, delivering new results in maintaining anonymity,
ensuring usability, detecting errors, and reasoning about decentralized
markets, all through the lens of these modern cryptocurrency systems. It
is a pleasure having two academic experts deliver the latest updates
from the burgeoning body of academic research on this subject.

Second,
Song Han provides an overview of hardware trends related to another
long-studied academic problem that has recently seen an explosion in
popularity: deep learning. Fueled by large amounts of training data and
inexpensive parallel and scale-out compute, deep-learning-model
architectures have seen a massive resurgence of interest based on their
excellent performance on traditionally difficult tasks such as image
recognition. These deep networks are compute-intensive to train and
evaluate, and many of the best minds in computer systems (e.g., the team
that developed MapReduce) and AI are working to improve them. As a
result, Song has provided a fantastic overview of recent advances
devoted to using hardware and hardware-aware techniques to compress
networks, improve their performance, and reduce their often large
amounts of energy consumption.

As always, our goal in this column
is to allow our readers to become experts in the latest topics in
computer science research in a weekend afternoon's worth of reading. To
facilitate this process, as always, we have provided open access to the
ACM Digital Library for the relevant citations from these selections so
you can read the research results in full. Please enjoy! —Peter Bailis

Research
into cryptocurrencies has a decades-long pedigree in academia, but
decentralized cryptocurrencies (starting with Bitcoin in 2009) have
taken the world by storm. Aside from being a payment mechanism "native
to the Internet," the underlying blockchain technology is touted as a
way to store and transact everything from property records to
certificates for art and jewelry. Much of this innovation happens in the
broader hobbyist and entrepreneurial communities (with increasing
interest from established industry players); Bitcoin itself came from
outside academia. Researchers, however, have embraced cryptocurrencies
with gusto and have contributed important insights.

Here we have
selected three prominent areas of inquiry from this young field. Our
selections of research papers within each area focus on relevance to
practitioners and avoid areas such as scalability that are of interest
primarily to cryptocurrency designers. Overall, the research not only
exposes important limitations and pitfalls of the technology, but also
suggests ways to overcome them.

Bitcoin
exists in a state of tension between anonymity (in the sense that real
identities are not required to use the system) and traceability (in that
all transactions are recorded on the blockchain, which is a public,
immutable, and global ledger). In practice, the privacy of vanilla
Bitcoin comes from obscurity: users may create as many addresses as they
like and shuffle their coins around, even creating a new address for
each transaction. But this paper demonstrates that "address clustering"
can be very effective, applying a combination of heuristics to link
together all the pseudo-identities controlled by an individual or
entity.

Anonymity in cryptocurrencies is a matter of not just
personal privacy, but also confidentiality for enterprises. Given
advanced transaction graph analysis techniques, without precautions, the
blockchain could easily reveal cash flow and other financial details.

There
are many different proposals for improving the privacy of
cryptocurrencies. These range from Bitcoin-compatible methods of
"mixing" (or "joining") coins with each other, to designs for entirely
new cryptocurrency protocols that build in privacy from the beginning.
Perhaps the most radical proposal is Zerocash, an alternative
cryptocurrency design that uses cutting-edge cryptography to hide all
information from the blockchain except for the existence of
transactions; each transaction is accompanied by a cryptographic,
publicly verifiable proof of its own validity. Roughly, the proof
ensures that the amount being spent is no more than the amount available
to spend from that address. The paper is long and intricate, and the
underlying mathematical assumptions are fairly new by cryptographic
standards. But this fact itself is food for thought: to what extent does
the security of a cryptocurrency depend on the ability to comprehend
its workings?

Endpoint security
Turning to security, the Achilles' heel of
cryptocurrencies has been the security of endpoints, or the devices
that store the private keys that control one's coins. The cryptocurrency
ecosystem has been plagued by thefts and losses resulting from lost
devices, corrupted hard drives, malware, and targeted intrusions. Unlike
fiat currencies, cryptocurrency theft is instantaneous, irreversible,
and typically anonymous.

This
paper studies six different ways to store and protect one's keys, and
evaluates them on ten different criteria encompassing security,
usability, and deployability. No solution fares strictly better than the
rest. Users may benefit considerably from outsourcing the custody of
their keys to hosted wallets, which sets up a tension with Bitcoin's
decentralized ethos. Turning to Bitcoin clients and tools, the authors
find problems with the metaphors and abstractions that they use. This is
a ripe area for research and deployment, and innovation in usable key
management will have benefits far beyond the world of cryptocurrencies.

Smart contracts
One
of the hottest areas within cryptocurrencies, so-called smart contracts
are agreements between two or more parties that can be automatically
enforced without the need for an intermediary. For example, a vending
machine can be seen as a smart contract that enforces the rule that an
item will be dispensed if and only if suitable coins are deposited.
Today's leading smart-contract platform is called Ethereum, whose
blockchain stores long-lived programs, called contracts, and their
associated state, which includes both data and currency. These programs
are immutable just as data on the blockchain is, and users may interact
with them with the guarantee that the program will execute exactly as
specified. For example, a smart contract may promise a reward to anyone
who writes two integers into the blockchain whose product is RSA-2048—a
self-enforcing factorization bounty!...

Izabella Kaminska shows us an aspect of Uber's business model that will probably have some unintended consequences going forward.
(looking at you, trial attorneys)

From FT Alphaville:

The gig economy’s cash management issue

Over the last few years, labour practices in the gig economy have
triggered a heated debate over where the boundaries of self-employed
status should begin and end.

The feeling among many critics is
that corporations are exploiting the classification simply to save money
by not providing the rights and benefits that come with traditional
employment. This is contributing to a major power shift in the social
contract that was hammered out during decades of strife between labour
and capital, they say.

But there is another thing possibly being
missed in the debate as it stands. It relates to the role cash
management plays in the gig economy.

Take the taxi market in the UK as an example.

Companies such as Uber like to claim they’re busting open an uncompetitive licensed taxi cartel, which operates against the interests of consumers.

But
in the case of the UK market, this is a slightly disingenuous claim.
Black cabs have always been forced to compete with private hire and
mini-cab rivals.

So, one might ask, why is competition from Uber
deemed intolerable from a labour and incumbent perspective but not from
the private hire or mini-cab market?

Two factors arguably dominate.

The
first, and most written about, relates to Uber’s scale and capital
advantage. Unlike local mini cab firms or even relatively centralised
players like Addison Lee, Uber’s well funded status alongside its
immense scale means it can undercut incumbent players with below-cost
pricing. Small local players simply wouldn’t be able to carry on
loss-making operations for years in the same way, and hence can’t
compete.

The second, and possibly less recognised factor, relates
to the power shift associated with using a centralised dispatcher for
self-employed operations. That dispatcher (Uber, in this case) also
happens to be a cash manager, which is important.

Indeed, one of
the reasons black cabs have historically been so reluctant to take debit
or credit cards (aside from the entirely separate issue of tax evasion)
links to the additional cost of processing digital transactions as a
small business operator. Cash has no processing charge, thus cash offers
a better margin in almost all cases.

In the mini cab world, meanwhile, the margins are even thinner meaning the incentive to take cash is even greater.

Private
hire firms, of course — by linking services to repeat accounts — have
historically been able to compete on this front by billing/invoicing
customers directly or by running corporate accounts that can be settled
on a bundled-payment basis.

Why money management matters
In
that latter situation drivers are, in most cases, still deemed
self-employed workers. What differentiates them from Uber contractors,
however, is that these centralised cash-managing providers tend to use
the cashflow advantage to reduce capital costs for their contractors.
They do this by investing in car fleets on a bulk basis (taking the
capital and depreciation risk accordingly) and renting the vehicles to
drivers on preferable terms to those found in the open market. The
drivers also need not pay for the insurance, MOT and PHV checks, repairs
or maintenance.

When it comes to the self-employed sector that’s
prepared to take on the full capital risk of owning a vehicle — namely
the Uber and mini-cab sector — the real differentiator thus becomes cash
management....MUCH MORE, including some pretty good comments:

Felix Dzerzinsky 1 day ago

Means of Payment > Means of Production

Uber Drivers have nothing to lose but their chains! They have a world of cash management to win.

Is it a tragedy? Is it a farce? In the land once called East Germany, in a town once called Karl-Marx-Stadt, a
bank called Sparkasse Chemnitz ran an online poll letting customers
vote for images to place on their credit cards. And the hands-down
winner was Karl Marx, an ironic pick given that … well, you don’t need
me to explain why.

In response to this selection, Planet Money has encouraged readers to post a tagline for the card on Twitter, using the hashtag #marxcard. Here are a few of our favorites so far:

There are Some Things Money Can’t Buy. Especially If You Abolish All Private Property.

From each according to their ability, to each according to his need. For everything else, there’s #Marxcard.

@planetmoney A spectre is haunting Europe - the spectre of cash back and low, low interest rates. #marxcard

We've been sitting on some links about the war of words going on between Research Affiliates' Rob Arnott and one of the quantfathers, AQR Capital's Cliff Asness. This is as good a place to start as any and we'll have more next week.
From Barron's ETF Focus, April 29:

For several years, Research Affiliates’s Rob Arnott has warned about the dangers of many smart-beta strategies. He may be protesting too much.

When a pioneer of a popular investing trend amplifies his warnings about that very trend, it’s worth paying attention—even if it seems self-serving. Over the past year, Research Affiliates chief Rob Arnott has fired cautionary flares about smart-beta. He first warned investors to be mindful of valuations; now he’s focused on momentum and value strategies.

Smart-beta exchange-traded funds try to meld active and passive management, exploiting factors such as value, low volatility, or momentum to outpace long-term returns from market-weighted strategies. Investors have embraced smart beta. The industry has responded with sundry strategies, with one-fifth of all ETF assets falling under this motley category. Assets in the U.S. totaled $501 billion at the end of the first quarter, up 34% from two years ago, according to research and consulting firm ETFGI. Almost three-quarters use a fundamental approach Arnott has helped popularize that systematically weights portfolios based on metrics like book value, cash flow, dividends, or sales.

In its latest paper, Research Affiliates says funds using value factors generated only 60% of the average annual premium in returns implied by the theoretical research that often draws investors to smart-beta strategies. Momentum investors fared even worse, reaping almost no edge in returns over a 25-year period. Research Affiliates’ head of equity research Vitali Kalesnik says high turnover and trading costs associated with momentum investing may account for part of the discrepancy between results and research. Apples-to-oranges comparisons also play a role. Much of the research is based on long-short portfolios. Yet, most funds are long only, missing out on returns from shorting.

The research casts a benign light on Research Affiliates’ own approach, finding that low beta, growth, and contrarian strategies stacked up better versus the literature. “We are trying to show that some smart beta—or the way investors approach these strategies—is not that smart,” Kalesnik says.

OTHERS HAVE QUESTIONED the efficacy of factors compared with 10 to 15 years ago. Momentum is one of the most challenged, says Morgan Stanley equity strategist Brian Hayes. One reason: greater use of momentum as more investors use quantitative models....MORE

Here's the Research Affiliates link page for both the original paper and the abridged version:

Factor tilt strategies have generally produced less alpha in live
portfolios compared to theoretical factor long–short paper portfolios
and have largely been unsuccessful in replicating smart beta strategies.
End-investors, consequently, often reap a much smaller return from
factor exposure than they expect. The winning approach to factor
investing is buying the losers: Past negative performance appears to be predictive of positive future returns.

Ah hell.
I hate seeing stuff like this in print.
It's true but I hate seeing it.
And it gets worse. He profanes an image of Julie Andrews along the way.
This Julie Andrews:

"It would surprise no one, perhaps, to learn that Julie Andrews travels with her own teakettle."

No. No it would not.

From The Macro Tourist:

There are two things that most men think they are experts at. Ask
any man, and chances are, deep down, they believe they are the world’s
greatest bbq’er and lover (probably in that order). Personally, I know
not everyone can be the world’s greatest lover, so I hope I might be in
the top quartile (I am giving myself a boost for all those
too-good-looking guys who think they don’t even have to try), but god
damn it! I know that I am in the top percentile when it comes to
barbecuing!

My delusions about my mad bbq’ng skills are similar to everyone’s
belief they are contrarians. Whether it is the NYSE specialist, the
Chicago pit local, the Bay Street equity trader, the London credit
specialist, or even the guy at home trading in his underwear, we are all
consumed by these romantic narratives where we bravely battle the naive
masses to nail the next great trade. But the reality is that we can’t all be contrarians. If we were, then it wouldn’t be contrarian…

Today we face expensive assets everywhere we look. Whether it is
real estate, equities, fixed income - capital is chasing assets at a
disturbing pace. Central Banks, with their massive quantitative easing
programs and negative rates, have inflated anything with a CUSIP, and
those private investors venturing out the risk curve have taken care of
everything else.

So what’s an investor to do? Is there anything truly cheap anymore?

Well, rest assured, there is absolutely nothing easy left.
Anything with a little bit of meat on the bone has been picked clean.
You could try making some money taking the other side of this over
valuation, but you need to realize who is on the other side of your
trade. Although you might time the occasional squiggle lower, I would
rather not fight Central Banks and their unlimited fire power.
No, I would rather go looking for something truly forgotten, hated, and cheap.

And nothing fits this bill better than grains.

I told you this wasn’t going to be easy, so when the idea of buying
grains makes you throw up a little in your mouth, don’t immediately
discount its investment merit. The grain charts look like death. No
two ways about it. As the trader who sits beside me says, “going long
grains is a hedge against profits.”

I realize these charts do not represent grain’s actual returns due to
the problems rolling contracts and the embedded carry
(positive/negative depending on the shape of the curve), but it gives
you a sense of the spot market over the past five years. The selling
has been relentless, and discouraging.

I like to follow agriculture twitter. It’s a nice break from all the
finance guys bragging about their latest wins or posting pictures of
the meat they are bbq’ng that evening. The ag people seem a little more
humble, but I must admit, I get a kick out of them showing off their
latest tractors or combines.

The reason I bring this up is to give you a sense of the sentiment within the agriculture trader community.

What’s that line legendary strategist Don Coxe likes to use? “The
most exciting returns are to be had from an asset class where those who
know it best, love it least because they have been burnt the worst?”

Well, there can be no doubt that grain longs have been burnt the
worse. If we back up the timeframe on our charts, and then adjust for
inflation, you will notice that grain prices are now all ticking all
time lows....MORE

The only positives of seeing this talked about are 1) You are dealing with a complex-chaotic system (a financial market) overlaid on a complex-chaotic system (weather) that will crush (soybean pun) you should you start to exhibit any symptoms of hubris, thus weeding out quite a few of the wannabes and 2) although the intraday move can be violent the longer term stuff can lull you into serious misreadings of reality.
The best examples are in the presentation of the charts above; it's actually been a wonderful trading environment.
If you've been short.
Which is what two-sided markets are all about.

Saturday, April 29, 2017

That's '...biggest booty haul', not "world's biggest booty....", for which see Google, at your own risk or Kardashian, Kim or Tim "Booty" Wilson, below (again, at your own risk).

Re: the hood, if you are going to be wandering around looking for treasure this is as nice a place as any.

From the BBC:

The Island With £100 Million HiddenAccording to legend, pirate treasure reportedly worth £100 million is
buried on an Indian Ocean island. This is the true story of two men’s
life-long search.

According to legend, pirate treasure reportedly worth £100 million is buried on an Indian Ocean island.

Although
the region is thought to be littered with hidden treasure, this one is
said to be the Holy Grail, the world’s biggest booty haul. The story,
which reads like a Hollywood script, has been passed down through
generations on the islands of the Seychelles and La Réunion.

Although many have tried – and failed – to locate the bounty, two men
have devoted their lives to the quest. Reginald Herbert Cruise-Wilkins,
known locally on the Seychelles island of Mahé as the ‘Treasure Man’,
hunted the fortune for 27 years until his death in 1977. His son John
inherited both the nickname and the quest.

When I first met John,
he immediately barked that I was half an hour late. I didn’t expect a
warm welcome; John is constantly hounded by writers and locals who stop
him wherever he is, asking if he is looking for buried treasure.

But as he showed me around what he believes is the treasure site, and
talked about the clues and what he had left to do, the gruff man melted
into one you couldn’t help but root for. His eyes twinkled and his
smile was infectious. Even after all these years of searching, he was
still the storybook boy hero armed with his backpack and treasure map,
trying to piece together the puzzle. His is a story of hope and of never
giving up, despite the odds.

John explained that the fascinating
tale of the treasure started in 1716 when Frenchman Olivier Levasseur,
otherwise known as ‘La Buse’ (The Buzzard) because of the speed with
which he would attack his enemies, was given a letter of marque to
operate as a privateer. But within a few months, Levasseur turned to the
more lucrative career of pirating.

In 1721, Levasseur and his
associates – then with 750 pirates over three ships – came across a
Portuguese galleon flying British colours, Nossa Senhora do Cabo, in the
port of La Réunion, then called Bourbon Island. They landed 250 men on
board and killed the crew. Levasseur, who had no idea what was on the
ship, was astonished with the haul. According to John, a historian
described it as ‘a floating treasure house, believed to consist of gold
and silver bars, precious stones, uncut diamonds, guineas, church plate
and goblets.’...MUCH MORE

Anyone who's shopped at IKEA is familiar with the retailer's signature tote - the Frakta.
Generously oversized and sensibly priced, the iconic blue bags are
known for their versatility and (for better or for worse) their
capability to hold even the most impressive hauls. Needless to say, the
shopping bag has essentially become synonymous with the brand, boasting
the classic bright blue hue with pops of yellow.

Last week, luxe fashion brand Balenciaga
rolled out a new tote that bore an uncanny resemblance to the Swedish
retailer's own. The difference? It would come to set you back an extra
$2,149.01, thanks to its "blue wrinkled, glazed leather" composition and
Balenciaga label. IKEA's response to the replica came in the form of a
cheeky ad, from Swedish agency ACNE, helping shoppers correctly identify
an original Frakta tote:

From the Federal Reserve Bank of New York's Liberty Street Economics blog, March 21, 2016:

What Tracks Commodity Prices?

Variousnewsreports
have asserted that the slowdown in China was a key factor driving down
commodity prices in 2015. It is true that China’s growth eased last year
and, owing to its manufacturing-intensive economy, that slackening
could reasonably have had repercussions for commodity prices. Still,
growth in Japan and Europe accelerated in 2015, with the net result that
global growth was fairly steady last year, casting doubt on the China
slowdown explanation. An alternative story relies on the strong
correlation between the dollar and commodity prices over time. A simple
regression shows that both global growth and the dollar track commodity
prices, and in this framework, it is the rise of the dollar that
captures last year’s drop in commodity prices. Thus a forecast of stable
global growth and a relatively unchanged dollar suggests little change
in commodity prices in 2016.

Prices Are Correlated with Global Growth
Commodity prices tend to fall when the global economy falters and rise
when it is booming. The chart below compares global growth, as measured
by the International Monetary Fund,
with the annual percentage change in the Commodity Research Bureau
price index for raw industrial goods (various metals, cotton, rubber,
wool, and other goods). The two lines move together, with a regression
using global growth having an R-squared of .52. That is, global growth
explains around 50 percent of change in this commodity price index over
this period. Looking at the chart, the closest co-movements are from
2004 to 2007—when the world economy was growing at an annual pace of
more than 5 percent and the commodity price index was rising 15 percent
per year—the collapse in growth in 2008-09, and the rebound in 2010-11.
However, this relationship struggles to explain the 1995-96 and 2012-15
periods, with the latter being one of stable global growth and steep
commodity price declines in both 2012 and 2015.

The stability of global growth does not necessarily preclude China’s
flagging growth from having a significant role in the decline of
commodity prices last year. In particular, China is more
commodity-intensive than Japan and Europe and this shift in composition
of growth last year is hidden in the global growth variable. Breaking
down global growth into emerging and advanced countries reveals that the
volatility of commodity prices is better captured by the growth of
emerging economies than the growth of advanced economies. Some of this
may be due to commodity prices affecting the economies of
commodity-producing countries. Still, growth in emerging economies only
slowed by half of a percentage point in 2015, so this variable is not
enough to explain last year’s steep decline. Also, note that a
regression using global growth does a better job tracking commodity
prices than one that relies only on the growth of emerging economies.

Prices Are Also Correlated with the DollarAnalysts
looking for another explanation of last year’s price decline point to
the strong correlation of commodity prices with the dollar—commodity
prices tend to fall (rise) when the dollar appreciates (depreciates).
One theory is that prices fall when the dollar strengthens because
commodities priced in dollars become more expensive to the rest of the
world, thereby restraining demand. It is a plausible explanation, but it
is also quite possible that the dollar is not a causal factor and is
instead correlated with other underlying factors affecting commodity
prices.

The next chart shows these two data series with the dollar index of
major currencies inverted so that the relationship is easier to see....MUCH MORE

Sam Khater, CoreLogic's deputy chief
economist, says loan performance is beginning to show some cracks in what has
been a near perfect veneer. This might
be an early signal of a downturn in the credit cycle. Khater is not issuing a warning, merely
alerting those who should be watching such things to pay attention.

He writes, in an article in the CoreLogic Insights blog, that a typical economic
expansion and recession are strongly driven by loan performance. When times are good, lenders take on more
marginal borrowers then tend to become more conservative when loan performance
begins to deteriorate. That often
exacerbates an economic downturn.

Loan performance across the four major
types of loans (agricultural, business, personal consumption, and real estate)
all improved throughout the first five years of the expansion. Then, over the last year, performance of the
first three loan types began to slip. Real
estate loans bucked the trend, continuing to improve. Now, Khater says, there are small signs that
their pristine levels of performance could be deteriorating.

Mortgage performance is typical measured
by levels of delinquency and foreclosure but those, Khater says, are both
backward looking and lag as indicators.
One way to address that is through transition rate analysis. This method controls for time by looking, in
the case of his analysis, at loan vintage, i.e. production within a given year,
which he says, allows for a much more nuanced view of performance.

By focusing on only those loans produced
in the first 10 months of each year in question allowed Khater to include 2016 data
in his analysis. His justification for
the short and early time frame is that historically the first six to nine months
of a loan's performance have a very strong persistence, and loans tend to
remain on a similar track years later.
He starts his analysis with 2010 as the first full year of the expansion
vintages and says underwriting has remained roughly similar since then....MORE

She was one of the original Muckrakers in McClure's Magazine's January 1901 issue.
This piece is a bit later, McClure's July 1905 via the Tarbell Collection at Allegheny College.

Author of "The History of the Standard Oil Company," "Life of Lincoln," ETC.

Illustrated with Portraits

Part One.

"A prince should earnestly endeavor to gain the reputation of kindness, clemency, piety, justice, and fidelity to his engagements. He ought to possess all these good qualities BUT STILL RETAIN SUCH POWER OVER HIMSELF AS TO DISPLAY THEIR OPPOSITES WHENEVER IT MAY BE EXPEDIENT. . . He should make it a rule, above all things, never to utter anything which does not breathe of kindness, justice, good faith, and piety; this last quality it is most important for him to appear to possess as men in general judge more from appearances than from reality. All men have eyes but few have the gift of penetration. Every one sees your exterior, but few can discern what you have in your heart." — Machiavelli — The Prince. Chap. xviii. "

John
D. Rockefeller is without question the most conspicuous type of our
present dominating commercial man. "The most important man in the world"
a great and serious newspaper passionately devoted to democracy calls
him, and unquestionably this is the popular measure of him. His
importance lies not so much in the fact that he is the richest
individual in the world, with the control of property which that
entails; it lies in the fact that his wealth, and the power springing
from it, appeal to the most universal and powerful passion in this
country — the passion for money. John D. Rockefeller, measured by our
national ambition, is the most successful man in the world — the
man who has got the most of what men most want. How did he get it, the
eager youth asks, and asking, strives to imitate him as nearly as
ability and patience permit. Thus he has become an inspirer of American
ideals, and his methods have been crystallized into a great national
commercial code. Nor
is this all. Mr. Rockefeller distributes money in charity and in
endowments. If not our first, he is certainly our second philanthropist;
the amount of the money given being the standard. All over the land
those who direct great educational, charitable and religious
institutions are asking, "Can we not get something from him?" Receiving
his bequests they become at least the tacit supporters of the thing for
which he stands — that is, John D. Rockefeller exercises a powerful
control over the very sources of American intellectual and religious
inspiration.Now
a man who possesses this kind of influence cannot be allowed to live in
the dark. The public not only has the right to know what sort of a man
he is; it is the duty of the public to know. How else can the public
discharge the most solemn obligation it owes to itself and to the
future, to keep the springs of its higher life clean? Who then is this
John D. Rockefeller? Whence did he come? By what qualities did he grow
to such power? Has he proved his right to the power? Does he give to the
public whence he has drawn his wealth a just return in ideas, in
patriotism, in devotion to social betterment, in generous living, in
inspiring personal character? Has John D. Rockefeller made good? From
time immemorial men who have risen to power have had to face this
question. Kings, tyrants, chieftains, since the world began have stood
or have fallen as they have convinced the public that they were giving
or not giving a just return for the power allowed them. The time is here
when Mr. Rockefeller must face the verdict of the public by which he
lives.As
to Mr. Rockefeller's origin it is typically American. He sprang from
one of those migrating families which, coming to this country in the
seventeenth century, has moved westward with each generation seeking a
betterment of condition. He and his brothers were the first great
product of a restless family searching a firm footing on new soil. The
first word heard of the Rockefeller family in Richford, Tioga County,
New York, where John D. Rockefeller was born, was in the early 1830's
when his grandfather, Godfrey Rockefeller, moved to that community from
Mud Creek, Massachusetts. There are still alive in Tioga County many men
and women who remember Godfrey Rockefeller. It is not a pleasant
description they give of him — a shiftless tippler, stunted in stature and mean in spirit,
but held to a certain decency by a wife of such strong intellect and
determined character that she impressed herself unforgettably on the
community.Godfrey
Rockefeller had not been long in Richford when he was followed by his
eldest son — William A. Rockefeller — a man of twenty-three or
twenty-four years of age. There seem to have been other Rockefellers,
for the family was sufficiently numerous and conspicuous to cause the
farm in West Hill near Richford, where they settled, to be dubbed
"Rockefeller settlement" — a name it still bears.It
is with William A. Rockefeller, father of John, that we have to do
here. There is enough which is authentic to be gleaned about him to form
a picture of a striking character. William A. Rockefeller was a tall
and powerful man with keen straightforward eyes, a man in whom strength,
and fearlessness, and joy in life, unfettered by education or love of
decency, ran riot. The type is familiar enough in every farming
settlement, the type of the country sport, who hunts, fishes, gambles,
races horses and carouses in the low and mean ways which the country
alone affords. He owned a costly rifle, and was famous as a shot. He was
a dare-devil with horses. He had no trade — spurned the farm. Indeed he
had all the vices save one — he never drank. He was a famous trickster,
too; thus, when he first reached Richford he is said to have called
himself a peddler —a deaf and dumb peddler,
and for some time he actually succeeded in making his acquaintances in
Richford write out their remarks to him on a slate. Why he wished to
deceive them no one knows. Perhaps sheer mischief, perhaps a desire to
hear things which would hardly be talked before a stranger with good
ears.It
was not long after he came to Richford that he began to go off on long
trips — peddling trips some said. Later he became known as a quack doctor,
and his absences were supposed to be spent selling a medicine he
concocted himself. Irregular and wild as his life undoubtedly was, his
strength and skill and daring, his frankness, his careful dress, for he
paid great attention to his clothes, as well as the mystery surrounding
the occupation which kept him looking so prosperous, made him a favorite
with the young and reckless and, unhappily, with women. On one of his
trips he met in Moravia, New York, the daughter of a prosperous farmer,
Eliza Davison. It is said that the girl married him in the face of
strong opposition of her family. However that may be, it is certain that
about 1837, William A. Rockefeller brought Eliza Davison to the
Rockefeller settlement as his wife, and here three children were born,
the second of whom — the record of his birth is dated July 8, 1839 — was
named John Davison.In
1843 William A Rockefeller moved his family to a farm near Moravia,
Cayuga County. The reputation he had built up in Richford as a "sporting
man" was duplicated in Moravia. He soon became the leader in all that
was reckless and wild in the community, and was classed by the
respectable and steady-going as a dangerous character
on whom no doubt much was fastened that did not belong. It may be for
this reason, as well as because of his frequent long and unaccounted for
absences, that he is still classed popularly in Moravia as one of the
gang who operated the "underground horse railroad" — and ran off horses
from various parts of the country. There is absolutely no proof of this,
but the conviction and sentence to the State prison, in 1850, of three
of his closest pals for horse-stealing coupled with his bad reputation
made many of his disapproving neighbors fix the crime equally on him,
and to-day old men in Moravia nod their heads sagely and say, "He was too smart to be caught."There
is an indictment against William A. Rockefeller for a more serious
crime (rape) than horse-stealing in the records of the County, for 1849,
and it is quite probable that he left Moravia under compulsion.
At all events, about 1850 he again moved his family, which now
consisted of his wife and five children, to Owego, New York. The family
remained in Owego but three years, and then moved to Strongsville, Ohio,
twelve or fifteen miles southwest of Cleveland. A year later they left
Strongsville for a country settlement, about seven miles south of
Cleveland, called Parma; and from there they went, in 1857, to
Cleveland, moving into a comfortable brick house, which William A.
Rockefeller had built for them....MORE

Friday, April 28, 2017

The U.S. economy grew at the slowest pace in three years during the first quarter, rising at a 0.7% rate, down from the prior quarter’s 2.1% rate. Here are early reactions from economists and analysts:

“Perhaps most encouraging, business investment in equipment, which
had languished for two years, posted a 9.1% annualized advance (I had
looked for a 6% rise). If the government can pull off corporate tax
reform, I look for a torrent of investment projects to be unleashed. Until then, gains will be limited.” —Stephen Stanley, Amherst Pierpont Securities
“Economy stronger than it appears in [first-quarter] report, already showing signs of accelerating again. Tailwind for wages encouraging.” —Diane Swonk, DS Economics

“While consumers may have stood still in the first quarter,
sluggishness in consumer spending did not translate to the housing
market…Housing is on track to cement its place as the bright spot on the economy.” —Nela Richardson, Redfin

“Growth of less than 1% means the wheels are up but the economy’s engines cannot gain any altitude.
We will see how long the mile-high confidence readings of consumers and
businesses hold up. The best temperature gauge of their relative
optimism is always the stock market we always thought and Dow
industrials closed up 6.2% year-to-date last night before the GDP data.”
—Chris Rupkey, MUFG Union Bank
“Here’s why I’m not freaking out about the low preliminary estimate to U.S. GDP (spoiler: it’ll get revised)” —Tara Sinclair, Indeed

“The trivial 0.7% annualized gain in first-quarter GDP, below the consensus forecast at 1.2%, won’t necessarily stop the Fed from hiking interest rates again in June.
In recent years there is a well-established pattern of GDP growth
disappointing in the first quarter and then rallying over the remaining
three quarters.” —Paul Ashworth, Capital Economics

It was a little over a year ago when the market first started noticing that
the private startup market had gotten just a little ahead of itself,
with various dotcom 2.0 darlings such as Dropbox, Square and others
slashing their private valuations by substantial amounts. Well,
overnight investors at peak private valuations got another harsh
reminder of just how much they may have overpaid when Cloudera, once
one of the most highly valued private tech companies, priced its IPO at less than half the company's valuation from its last private financing round back in 2014.

As the FT notes,
the share sale marked a new low for so-called unicorns, or private tech
companies once valued at more than $1bn. Companies such as Cloudera
have turned to Wall Street as the once red-hot private investment market
has cooled, forcing some to take big discounts on their former valuations to raise more money.

Among the biggest losers in the Cloudera IPO, if only on
paper, will be Intel, which sank $742m into the big data company in
2014. At the time, that investment set a record $4.1 billion valuation
for Cloudera, pushing it into the top 30 ranking of most valuable global
"unicorns" according to the WSJ.
Fast forward to late on Thursday, when the company announced a price of
$15 for shares in its IPO. While above the indicated range of $12-$14,
it was less than half the $30.95 it sold its shares for in 2014.

Cloudera will raise $225 million in cash proceeds from its
NYSE IPO on Friday, giving it an initial market cap of $1.9 billion.

While there have been various other tech companies that have
suffered the "private valuation" hammer, forced to accept much lower
valuations to maintain their access to capital in the public market,
none has taken as big a cut.

“Nothing has happened quite like Cloudera — yet,” said
Kashif Sheikh, an analyst at PrivCo, which tracks the financing of
private companies. “People are coming to realise that these companies
are not worth those last private rounds.”...MORE

Didi's relentless approach is getting a bit scary but I do laugh when thinking of the company's President's thoughts on the biz:

I still can't get the picture of Didi Chuxing's President, Liu Qing
(anglicized to Jean Liu), commenting on Travis Kalanick and Uber's
efforts in China as cute. Then when Uber proclaimed the $3.5 billion
investment from the Saudis she laughed and said she had more than that
on the way.

Didi then announced the completion of a $7.3 billion fundraising.
Uber better be on top of their game in Southeast Asia because they weren't in China and got run out of the country....

Ride-hailing giant Didi Chuxing
raised more than $5.5 billion from investors, scoring the largest round
of funding ever for a technology company to bankroll an expansion
beyond China and into driver-less technology.

Didi, which drove Uber Technologies Inc.
out of China last year, is already one of the country’s best-funded
private companies: its backers range from powerful state agencies to
global venture firms and WeChat-operator Tencent Holdings Ltd. The
latest financing, which Didi disclosed in an emailed statement Friday,
may propel forays into everything from artificial intelligence to
auto-financing -- and potentially markets beyond its home territory.

Didi, led by the 33-year-old Cheng Wei, didn’t reveal the backers who joined this round. People familiar with the matter said this week that the investors would include SoftBank Group Corp., Silver Lake Kraftwerk, China Merchants Bank Co. and an arm of Bank of Communications
Co. The round was said to have raised the four-year-old startup’s
valuation to about $50 billion, up from a previous $34 billion after its
acquisition of Uber’s China business.

That price tag would surpass smartphone maker Xiaomi Corp.’s
and make Didi the world’s most valuable startup after Uber. Didi
amassed $10 billion in cash and equivalents last year, but the deal
yields more ammunition as it prepares to challenge Uber and Alphabet Inc. in automated driving, and buys the company time to carve out new revenue streams.

Cheng founded Didi less than five years ago after leaving e-commerce giant Alibaba Group Holding Ltd.
He and former colleagues started the business with financing from one
of Alibaba’s ex-executives and initially launched the service in the
southern metropolis of Shenzhen.

As the business took off, he won out over rivals through competition or acquisition. That culminated with last year’s acquisition of Uber’s China business, resulting in the U.S. ride-hailing company getting a 17.5 percent stake in Didi....MORE

...Having cornered the market for on-demand cars and taxis, Cheng is
branching out into bus services and bikes, throwing his weight for
instance behind one of the country’s largest bicycle-renting services, Ofo.
On the global front, the company has formed an alliance with Grab in
Southeast Asia and Ola in India, to thwart Uber in those regions....

...Prices/Supply/Demand:...June Nymex contract flat. At the Nymex, the May 2017
contract expired yesterday at $3.142/MMBtu, down 4¢ from last
Wednesday. The June 2017 contract remained unchanged Wednesday to
Wednesday at $3.271/MMBtu. The price of the 12-month strip, which
averages the June 2017 through May 2018 futures contracts, increased 1¢
to $3.370/MMBtu.

Supply flat. According to data from PointLogic, the
average total supply of natural gas remained the same as the previous
report week, averaging 74.8 billion cubic feet per day (Bcf/d). Dry
natural gas production remained constant week over week. Average net
imports from Canada decreased by 2% from last week.

Demand rises slightly. Total U.S. consumption of
natural gas rose by 2% compared with the previous report week, according
to data from PointLogic. Week over week, power burn declined by 2%,
industrial sector consumption increased by 1%, and
residential/commercial sector consumption increased by 12%. Natural gas
exports to Mexico increased 24% as maintenance on the NET Mexico
Pipeline concluded over the weekend, and export flows were restored on
the line.

Because of maintenance on the NET Mexico pipeline, the United States made its first two shipments of liquefied natural gas (LNG)
to Mexico's Altamira import terminal in the Gulf of Mexico. Mexico has
been the largest recipient of U.S. LNG exports, with 20 cargoes shipped
since the start of LNG exports in February 2016, but all shipments
prior to these two went to the Manzanillo terminal on Mexico's west
coast.

U.S. LNG exports. Natural gas pipeline deliveries to
the Sabine Pass liquefaction terminal averaged 1.1 Bcf/d for the report
week, 43% lower than in the previous week. Three vessels (combined
LNG-carrying capacity of 11.4 Bcf) departed Sabine Pass last week
(Thursday to Wednesday).
Last week, the proposed Golden Pass LNG liquefaction terminal received an approval
from the U.S. Department of Energy (DOE) to export up to 2.21 Bcf/d of
LNG to non-Free Trade Agreement (FTA) countries for 20 years. To date,
DOE has authorized 19.2 Bcf/d of LNG exports to non-FTA countries.
more price data

Storage:
Mild temperatures result in higher-than-average net injections into working gas storage.
Net injections into storage totaled 74 Bcf, compared with the
five-year (2012–16) average net injection of 57 Bcf and last year's net
injections of 64 Bcf during the same week. Net injections into working
gas during the storage week were the largest reported so far in the 2017
injection season and the largest reported this early in the refill
season since April 17, 2015.

Working gas levels are 14% lower than last year's record levels, but well ahead of the five-year average.
Working gas levels are 358 Bcf lower than last year's levels at this
time. This year-over-year deficit prevails in each of the regions of
the Lower 48 states. The South Central region has the largest
year-over-year deficit of 131 Bcf. The Midwest and Pacific regions are
both 48 Bcf lower than last year's levels. In contrast, working gas
levels are 299 Bcf higher than the five-year average in the Lower 48
states and are higher than the five-year average in all regions except
the East and the Pacific regions, which are 53 Bcf and 15 Bcf lower than
the five-year average, respectively. The South Central region accounts
for 222 Bcf of the surplus compared with the five-year average, and the
Midwest region is 117 Bcf higher than the five-year average.

The January futures price is trading at a premium over the current spot price, but well behind last year's level at this time.
During the most recent storage week, the average natural gas spot
price at the Henry Hub was $3.09/MMBtu, while the Nymex futures price of
natural gas for delivery in January 2018 averaged $3.62/MMBtu, a
difference of 54¢. The premium was $1.10 a year ago. The price premium
provides incentives for continued injections of natural gas into
storage....MUCH MORE

Thursday, April 27, 2017

Sea voyages were a major economic activity—and a risky one. Ships sank, ran afoul of piracy, suffered delays due to weather, or arrived to find that prices were unexpectedly low. This made insuring and financing voyages the high finance of the time. Before there were private equity firms and hedge funds, there was cargo insurance. It was a speculative way for wealthy families and private banks to earn high returns—as long as ships arrived safely in harbor.

Today, however, the shipping industry no longer dominates the way it did in Ancient Greece and Rome or 18th century London. Most people never consider the skyscraper-sized container ships that carry clothes, grain, and other cargo from one port to another.

Nor do most people consider the $30 billion maritime insurance industry that insures that cargo for a few cents on the dollar against the possibility of, say, a giant container of cargo falling overboard in stormy seas—a calamity that befalls an estimated 2,000 to 10,000containers (much less than 1% of all containers) each year.

But 2,000 years ago, cargo insurance was also essential to the survival of some of the world’s first great cities. Rome’s population was the largest in the Western world until 18th century London. Athens and other Greek cities grew large on the strength of their ports rather than landholdings. Without the Ancient Romans insuring trading ships, those cities would never have received enough food each year to become large urban centers whose accomplishments we still study and admire today.

An Alternative to the Oracle

Maritime insurance is the oldest form of insurance by centuries. But it looked very different when it was sought by sailors crossing the seas that Odysseus had found so perilous. It was much more speculative.

Instead of paying a fee to insure their cargo, merchants funded their voyages with loans that also served as insurance. The loans had very high interest rates, because under the terms of the loan, if the ship sank or the voyage did not succeed, the merchant did not have to repay the loan. This practice, which dates back to at least 1800 BCE and Ancient Babylon, is known as “bottomry”—a reference to the fact that lenders could claim the ship itself if they were not paid back on time.

It is an arrangement that is easy to describe but difficult to characterize: not a pure loan, because the lender accepts part of the risk; not a partnership, because the money to be repaid is specified; not pure insurance, because it does not specifically secure the risk to the merchant's goods. It is perhaps best considered as a futures contract: the insurer has bought an option on the venture's final value.

Still, it’s clear that merchants and lenders used bottomry and maritime loans to minimize risk and maximize profit. In Ancient Greece, lenders demanded higher interest rates during stormy seasons. They also charged higher rates to unreliable borrowers like Aischines, a merchant whose reputation led Athens’ maritime lenders to say it was “less risky to 'sail to the Adriatic' than to deal with this fellow.”

Greek lenders did not jealously guard access to the best deals. Instead it seems that Athenian lenders spread the risk by investing and insuring small amounts in many voyages. Surviving records of maritime loans all show more than one lender per vessel.

Historians believe that Greek merchants and lenders thought of the high interest rates as compensation for taking on the risk of the voyage failing. They also note that Rome copied the practice of bottomry from the Greeks, and a legal text from 500 AD, when the Empire’s capital had moved to Constantinople, explicitly confirms that Romans equated high interest rates with paying for risk. At the time, Roman law capped interest rates at 12%. Yet as James Franklin notes in The Science of Conjecture, the law sanctioned higher interest rates in the case of maritime loans because “the price is for the peril.”

This is why historians consider bottomry and maritime loans to be the earliest form of cargo insurance....MUCH MORE

There is so much business that has the coffeehouses back in the mists of their early history, Lloyd's and The Jerusalem for the maritime crowd, Jonathan's and Garraway's [#14 on map] for the stockjobbers. Unfortunately the instant piece doesn't go into much detail, I may have to put a post together. For now here's Jonathan Swift on the exchange crowd:

...Meantime, secure on Garraway cliffs,A savage race, by shipwrecks fed,Lie waiting for the foundered skiffs,And strips the bodies of the dead."

Harsh.(He lost money in the South Sea bubble)From The Public Domain Review:... ...Here are the main establishments frequented by the stockjobbers and other denizens: